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CS&L to Buy PEG Bandwidth in $409M Deal

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Communications Sales & Leasing Inc. of Little Rock on Thursday announced its first acquisition, a $409 million deal for PEG Bandwidth LLC, a telecommunications infrastructure provider owned by affiliates of private equity investment firm Associated Partners LP of New York and Pennsylvania.

CS&L, a publicly traded real estate investment trust spun off from Windstream Holdings Inc. of Little Rock last year, called PEG “a leading provider of infrastructure solutions including cell site backhaul and dark fiber for telecom carriers and enterprises.” It said PEG has a fiber network of more than 300,000 strand miles in Illinois and the northeast and south-central regions of the country.

The deal totals $450 million when accounting for $41 million in capital lease obligations.

Shares of CS&L (Nasdaq: CSAL) spiked on word of the deal, up more than 7 percent to about $21.25 on Thursday. The stock closed at $19.79 on Wednesday.

“PEG Bandwidth is a compelling and strategic acquisition for CS&L with a rich fiber-to-the-tower network, respected management team, and strong customer relationships with over 80% of revenues from the largest wireless carriers,” CS&L President and CEO Kenny Gunderman said in a news release. “PEG will provide us a high growth operating platform as we continue to build a fiber rich REIT focused on acquiring and constructing mission critical communication infrastructure assets.”

The $409 million includes $315 million cash, issuance of 1 million shares of CS&L common stock, and the issuance of 87,500 shares of the CS&L 3% Series A Convertible Preferred Stock. CS&L said it would fund the cash portion of the deal through cash on hand and borrowings under its revolving credit facility. CS&L Treasurer/CFO Mark Wallace said during a conference call that the company has about $200 million in cash on its balance sheet.

Wallace said the entire PEG management team will be retained and that PEG will continue to function as a separate business.

Scott Bruce, managing director at Associated Partners, will join the CS&L board of directors after the deal closes in April.

“CS&L is a great partner as PEG continues to grow and diversify its business, and we are thrilled to have a continuing equity interest in CS&L given our assessment of their future prospects,” Bruce said.

Associated Partners is an investment and operating partnership managed by David and Bill Berkman.

In November, the company reported third-quarter net income of $9.4 million, or 6 cents per share, and revenue of $173.6 million.

Gunderman said CS&L will continue to focus on dark fiber in tier 2 and 3 markets.

“Dark fiber is appealing to us,” he said. “There’s a growing trend among carriers who want dark fiber. We look forward to being an enabler in that.”

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